In the spring of 1979 Jerry Buss had a serious problem. As he flew over the Las Vegas desert thoughts of his meeting with Jack Cooke raced through his mind. Cooke had set a deadline and the escrow company had put in a final call for $3 million to close the deal on buying the Los Angeles Lakers.

Dr. Buss’s problem was that he was completely tapped, and his meeting with Cooke to work out a deal for the remaining $3 million had not gone well. He had less than 24 hours to come up with $3 million or watch his dream of owning an NBA team evaporate.

We can only speculate on what he was thinking on the flight back to LA, but the 1 hour flight must have seemed like an eternity. Like most winners in life, he exited the plane and immediately began to work.

His business partner Frank Mariani was able to secure a $2 million loan and Buss was able to secure the remaining $1 million from another investor. Then, with only a few hours left, Buss’ investor dropped out leaving him and his partner $1 million short.

With time continuing to work against him, Buss was forced to turn to an unlikely ally who many did not want to be indebted to... Donald Sterling (future owner of the Clippers).

While Jerry Buss became ridiculed for paying a record price for any sports franchise at the time, and being leveraged to the hilt, Buss was able to see not just a price tag of $67.5 million dollars for the transaction, but 3-4 separate assets within the purchase that if broken up could produce significantly more value than one asset alone. He would go on to prove his critics wrong.

Similar to the Lakers transaction, we advise our investors to look beyond the initial price tag or cap rate in order to see value where other investors do not. We look at three simple parameters when valuing any parking asset. These parameters are very similar to Dr. Buss’s investment model and help investors determine their own cap rate.

1) Are there other income producing assets that can be broken off and sold separately?

Can any portion of the business be split off and sold

Is there an opportunity for an increase in rates

Is there additional income or potential from billboards or cell phone towers

Are there any future developments that will cause an increase in parking

Are there any new developments that will cause an increase in demand for land

What are the FAR (Floor area ratio), zoning, and height restrictions

Can I partner with a developer to build a high rise and get 3-5 stories of parking in exchange for the land?

In the summer of 1979, after closing the Lakers deal, Dr. Buss embarked on a similar model to that we use for parking.

Rule #1 (Look for additional or increasing sources of Revenue)

He raised premium ticket prices from $15 to $60 to $100

He sold just 25% of the Los Angeles Kings which were included in the sale for $20 million

He helped negotiate a valuable TV deal with a local station and the NBA (Currently worth $3 Billion)

He made a killing on parking. (Thousands of spaces at $20 per space per event)

Rule #2 (Cut Expenses)

He offered Magic Johnson deferred compensation to save on payroll (A first in sports)

Included in the deal was a $10 million ranch in the Lake Tahoe area that could be sold to retire debt and cut his expenses

He sold the naming rights of the arena to the Great Western Bank for $20 million or 30% of the purchase price to further retire more debt and cut expenses

Rule #3 (Value in Redevelopment)

He made the Forum the main venue in Los Angeles for concerts, and other sporting events collecting event and ticket fees

He eventually parlayed his investment into a brand new arena (Staples Center) where he would make over a billion dollars in luxury suites and television rights alone

As you see with the Jerry Buss story, whether you are buying a parking investment or a professional basketball team, you have to drive your own cap rate higher. If you stay true to our three guiding principles, you will be able to consistently outperform your competition and silence your critics. As a very successful business person used to say, “asking a visionary what he thinks about critics is like asking a lamppost what it thinks about dogs.”

Or as Chick Hearn, the long-time voice of the Lakers used to say, “The game’s in the refrigerator! The door is closed, the lights are out, the eggs are cooling, the butter is getting hard, and the Jello-O is jiggling”